INTRODUCTION
To obtain a more comprehensive understanding of our financial condition, changes in financial condition, and results of operations, the following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 (the "2021 Annual Report"), which was filed withthe United States ("U.S.")Securities and Exchange Commission (the "SEC") onMarch 1, 2022 . The following discussion and analysis contains forward-looking statements about our business, operations, and financial performance based on current plans and estimates that involve risks, uncertainties, and assumptions. Actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause such differences are discussed in the sections of this Quarterly Report on Form 10-Q titled "Cautionary Statements Regarding Forward-Looking Statements" and Item 1A "Risk Factors."
Table of Contents
• Overview and Basis of Presentation • Factors Affecting Operating Results • Key Performance Indicators • Results of Operations • Non-GAAP Measures • Liquidity and Capital Resources • Critical Accounting Estimates • Cautionary Statements Regarding Forward-Looking Statements
OVERVIEW AND BASIS OF PRESENTATION
Our Business
ADT Inc. , together with its wholly-owned subsidiaries (collectively, the "Company," "we," "our," "us," and "ADT"), is a leading provider of security, interactive, and smart home solutions serving residential, small business, and commercial customers in theU.S. Since the acquisition ofCompass Solar Group, LLC (now "ADT Solar") (the "ADT Solar Acquisition") inDecember 2021 , we also provide residential solar and energy storage solutions. We believe solar is a logical extension of our offerings as it enhances our ability to deliver an integrated safe, smart, and sustainable home experience. Our mission is to empower people to protect and connect to what matters most - their families, homes, and businesses - by delivering safe, smart, and sustainable lifestyle-driven solutions through professionally installed, do-it-yourself ("DIY"), and mobile or other digital-based offerings supported by our 24/7 professional monitoring services. We are building a strong platform for growth by focusing on improving customer satisfaction and retention, increasing our recurring monthly revenue through subscriber acquisition and the introduction of new products and services, increasing the rate at which new subscribers opt for our interactive services, and reducing our revenue payback period.
Basis of Presentation and Segments
All financial information presented in this section has been prepared inU.S. dollars in accordance with generally accepted accounting principles inthe United States of America ("GAAP") and includes the accounts ofADT Inc. and its wholly-owned subsidiaries. All intercompany transactions have been eliminated. In addition, we use the equity method of accounting to account for our investment in Canopy (as defined below) as we have the ability to exercise significant influence but do not have control. 34 --------------------------------------------------------------------------------
We report financial and operating information in the following three segments:
•Consumer and Small Business - The Consumer and Small Business ("CSB") segment primarily includes the sale, installation, servicing, and monitoring of integrated security and automation systems and other related offerings to residential homeowners, small business operators, and other individual consumers, as well as general corporate costs and other income and expense items not included in another segment. •Commercial - The Commercial segment primarily includes the sale, installation, servicing, and monitoring of integrated security and automation systems, fire detection and suppression systems, and other related offerings to larger businesses and/or multi-site operations, which often require more sophisticated integrated solutions, as well as certain dedicated corporate and other costs. •Solar - The Solar segment primarily includes the design and installation of solar and related solutions and services to residential homeownerswho purchase solar and energy storage solutions, energy efficiency upgrades, and roofing services, as well as certain dedicated corporate and other costs. Our Chief Executive Officer,who is our chief operating decision maker (the "CODM"), uses Adjusted EBITDA, which is considered the segment profit measure, to evaluate segment performance. Our definition of Adjusted EBITDA, a reconciliation of Adjusted EBITDA to net income (loss), and additional information, including a description of the limitations relating to the use of Adjusted EBITDA, are provided under "-Non-GAAP Measures."
Refer to Note 3 "Segment Information" for additional information.
COVID-19 Pandemic Update
DuringMarch 2020 , theWorld Health Organization declared the outbreak of a novel coronavirus as a pandemic (the "COVID-19 Pandemic"). While responses have varied by individuals, businesses, and state and local governments, the COVID-19 Pandemic, including recent variants, caused certain notable impacts on general economic conditions, including temporary and permanent closures of many businesses, increased governmental regulations, supply chain disruptions, and changes in consumer spending. To protect our employees and serve our customers, we have implemented and are continuously monitoring and evolving certain measures as necessary, such as (i) detailed protocols for infectious disease safety for employees, (ii) employee daily wellness checks, and (iii) certain work from home actions, including for the majority of our call center professionals. Our response plan has not materially changed from that described in the 2021 Annual Report, and we continue to provide relevant updates as necessary. We believe our overall recurring revenue and highly variable subscriber acquisition cost model provides a solid financial foundation for strong cash flow generation despite the impact from the COVID-19 Pandemic. We anticipate maintaining sufficient liquidity and capital resources to continue (i) providing essential services, (ii) satisfying our debt requirements, and (iii) having the ability to return capital to our stockholders in the form of a regular quarterly dividend during this challenging macroeconomic environment. We continue to consider the on-going and pervasive economic impact of the COVID-19 Pandemic in our assessment of our financial position, results of operations, and cash flows, as well as certain accounting estimates as of and for the periods presented. However, the evolving and uncertain nature of the COVID-19 Pandemic, as well as any related economic or regulatory impacts, could materially impact our estimates and financial results in future reporting periods.
Hurricanes
During the third quarter of 2022, Hurricanes Fiona and Ian impacted certain areas in which we operate and resulted in power outages and service disruptions to certain of our customers. We will continue to monitor and do not anticipate any material impacts from these hurricanes. 35 --------------------------------------------------------------------------------
FACTORS AFFECTING OPERATING RESULTS
The factors described herein could have a material adverse effect on our business, financial condition, results of operations, cash flows, and key performance indicators.
As ofSeptember 30, 2022 , we served approximately 6.7 million security monitoring service subscribers. Generally, a significant upfront investment is required to acquire new subscribers that in turn provide ongoing and predictable recurring revenue generated from our monitoring services and other subscriber-based offerings. Although the economics of an installation may vary depending on the customer type, acquisition channel, and product offering, we generally achieve revenue break-even in less than two and a half years. For our subscriber-based offerings, our results are impacted by the mix of transactions under a Company-owned equipment model versus a customer-owned equipment model (referred to as outright sales), as there are different accounting treatments applicable to each model. As we continue to build our partnership withGoogle LLC ("Google"), introduce new or enhance our current offerings, and refine our go-to-market approach, we expect to see a shift toward an increasing proportion of outright sales transactions, which will impact results in future periods. The overall demand for our products and services is driven by a number of external factors such as the overall economic conditions in the geographies in which we operate, the price and quality of our products and services compared to those of our competitors, as well as changes in competition such as from the acquisition or disposition of similar businesses by our competitors. Our ability to add new customers and grow our businesses is also impacted by the following: •Growth in our residential and small business customer base can be influenced by the overall state of the housing market, the perceived threat of crime, the occurrence of significant life events such as the birth of a child or opening of a new business, or the availability of financial incentives such as those provided by insurance carriers.
•Growth in our commercial customer base can be influenced by the rate at which new businesses begin operations or existing businesses grow, as well as applicable building codes and insurance policies.
•Growth in our solar customer base can be influenced by the availability of certain rebates, tax credits, and other financial incentives, the availability and cost of consumer financing options, and traditional energy prices and grid reliability. We believe advancements in technology, younger generations of consumers, and shifts to de-urbanization have increased consumer interest in smart home offerings and other mobile technology applications; and we have made significant progress toward increasing the variety of our offerings to accommodate these changing interests. In addition, we believe uncertainties around the economic environment and the COVID-19 Pandemic have, in general, increased consumer and business awareness of the need for security. Advances in technology are also helping us to improve our products and services and reduce our costs. For example, our innovative virtual service support program (the "Virtual Assistance Program "), which launched for our residential customers inJuly 2021 , provides our customers the ability to troubleshoot and resolve certain service issues through a live video stream with our skilled technicians. This provides customers with more options for receiving certain services that best fit their lifestyles while reducing the cost for us to provide these services and lowering our carbon footprint by eliminating thousands of vehicle trips each day. We may experience an increase in costs associated with factors such as (i) offering a wider variety of products and services; (ii) providing a greater mix of interactive and smart home solutions; (iii) replacing or upgrading certain system components due to technological advancements or otherwise; (iv) supply chain disruptions; (v) inflationary pressures on costs such as materials, labor, and fuel; and (vi) other changes in prices, interest rates, or terms from our suppliers, vendors, or third-party lenders. Changes in interest rates or terms from third-party lenders that provide loan products to our Solar customers are impacted by factors such as theFederal Reserve increasing the risk-free interest rate. Refer to Note 6 "Goodwill and Other Intangible Assets" and Critical Accounting Estimates below for further discussion. Attrition has a direct impact on our financial results, including revenue, operating income, and cash flows. A portion of our recurring customer base can be expected to cancel its service every year as customers may choose not to renew or may terminate their contracts for a variety of reasons, including relocation, cost, loss to competition, or service issues. Prior to 2020, new customer additions and our disconnect rates on our residential monitored security customers were typically higher during the second and third calendar quarters of each year relative to the first and fourth quarters due to several factors including the timing of household moves and the overall state of the housing market. We believe the COVID-19 Pandemic affected these seasonal trends beginning in 2020. During 2020, we experienced a lower volume of customer relocations which was followed by a slight increase during 2021 as the number of household moves increased. During 2022, we have seen favorable trends in gross customer revenue attrition primarily as a result of a lower volume of customer relocations, partially offset by an increase 36 -------------------------------------------------------------------------------- in non-payment disconnects. We are currently unable to determine whether there will be any ongoing or further impacts on our seasonality, and we may continue to experience fluctuations in these or other trends in the future. We have not sought or requested government assistance as a result of the COVID-19 Pandemic, but we did experience a favorable cash flow impact during 2020 and other benefits associated with certain income tax and payroll tax provisions of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), including the deferral of remittance of certain 2020 payroll taxes. We paid the majority of the first 50% of the deferred amount during the fourth quarter of 2021, and expect to pay the remainder byJanuary 2, 2023 .
Strategic Partnerships
InJuly 2020 , we entered into a Master Supply,Distribution, and Marketing Agreement with Google (the "June 2022 , we amended theSeptember 30, 2022 . As ofSeptember 30, 2022 ,who do not have ADT Pulse or ADT Control interactive services. We have already begun providing Google video services and devices, and we will continue to do so on a non-integrated basis, as we work closely withNest doorbell during the first quarter of 2022, rolled out mesh Wi-Fi during the second quarter of 2022, and launched$150 million towards the joint marketing of devices and services; customer acquisition; training of our employees on the sales, installation, customer service, and maintenance of the product and service offerings; and technology updates for products included in such offerings. Each party is required to contribute such funds in three equal tranches, subject to the attainment of certain milestones. InAugust 2022 , we entered into the Google Commercial Agreement Amendment, pursuant to which Google has agreed to commit an additional$150 million to fund growth, data and insights, product innovation and technology advancements, customer acquisition, and marketing, as mutually agreed by us and
InApril 2022 , together with Ford Motor Company ("Ford"), we formed a new entity,SNTNL LLC ("Canopy"), which combines ADT's professional security monitoring andFord's AI-driven video camera technology, to help customers strengthen the security of new and existing vehicles across various automotive brands. ADT andFord expect to invest approximately$100 million collectively during the next three years, of which we will contribute 40%. We have contributed approximately$11 million , which was part of the initial funding at closing. In addition, we entered into several commercial agreements (the "Canopy Commercial Agreements"), which are discussed in Note 5 "Equity Method Investments."
As discussed in Note 10 "Equity," inSeptember 2022 , we entered into a Securities Purchase Agreement withState Farm Fire & Casualty Company ("State Farm ") (the "State Farm Securities Purchase Agreement"), pursuant to which we agreed to issue and sell in a private placement toState Farm 133,333,333 shares of our Common Stock (the "State Farm Shares") at a per share price of$9.00 for an aggregate purchase price of$1.2 billion (the "State Farm Strategic Investment "). Also, inSeptember 2022 , in connection with theState Farm Strategic Investment , we commenced a tender offer to purchase up to 133,333,333 shares of our Common Stock (including shares issued upon conversion of Class B Common Stock) (the "Tender Shares") at a price of$9.00 per share (the "Tender Offer"). 37 -------------------------------------------------------------------------------- Concurrently with the execution of the State Farm Securities Purchase Agreement, (i) Apollo delivered to us a Tender and Support Agreement, pursuant to which Apollo agreed to collectively tender (and not withdraw) no fewer than 133,333,333 shares of Common Stock in the Tender Offer (the "Apollo Support Agreement") and (ii)
The Tender Offer is considered a contingent forward purchase contract (the
"Forward Contract"), and we recorded changes in fair value of
OnOctober 13, 2022 , we issued and sold the State Farm Shares at a per share price of$9.00 and received$1.2 billion (the "Closing"). The Tender Offer expired onOctober 20, 2022 (the "Tender Expiration Date"), and onOctober 26, 2022 , we used proceeds from theState Farm Strategic Investment to repurchase an aggregate of 133,333,333 shares of our Common Stock at a purchase price of$9.00 per share, subject to the terms and conditions described in the Offer to Purchase datedSeptember 12, 2022 (as amended from time to time, the "Offer to Purchase"). The Tender Shares were subject to the "odd lot" priority and proration provisions described in the Offer to Purchase as the Tender Offer was substantially over-subscribed. No shares of Class B Common Stock were converted and tendered in the Tender Offer.
After giving effect to the
The portion of our issued and outstanding Common Stock (assuming conversion of Class B Common Stock) owned by Apollo prior and subsequent to the Tender Offer was 67% and 55%, respectively. Additionally, we entered into a Development Agreement withState Farm (the "State Farm Development Agreement"), pursuant to whichState Farm committed up to$300 million to fund product and technology innovation, customer growth, and marketing initiatives. Upon the Closing, we received$100 million of such commitment fromState Farm , which is restricted until we use the funds in accordance with the State Farm Development Agreement. Our use of the funds is also subject to approval byState Farm .
Radio Conversion Program
During 2019, we commenced a program to replace the 3G and Code-Division Multiple Access ("CDMA") cellular equipment used in many of our security systems as a result of the cellular network providers notifying us they will be retiring their 3G and CDMA networks beginning in 2022. As of the start of the rolling 3G sunset process inFebruary 2022 , we had converted substantially all of our remaining 3G customers. Following the completion of the applicable network sunset, for those customerswho do not transition prior to or have not transitioned since, the loss of signal to our security systems and certain services we provide may impact our ability to bill and/or collect from these customers in the future, which may impact our attrition. Until the cellular network providers complete the applicable sunset processes, we cannot estimate the impact of the conversion on our attrition rate.
We do not expect the remaining radio conversion costs and related incremental revenue to be material.
Tax Legislation
Delayed Effective Dates for Tax Law Changes under the Tax Cuts and Jobs Act
Certain changes toU.S. federal tax law included in the Tax Cuts and Jobs Act had a delayed effective date and have taken effect for tax years beginning afterDecember 31, 2021 . Under Internal Revenue Code ("IRC") Section 163(j), the limitation on net business interest expense deductions will no longer be increased by deductions for depreciation, amortization, or depletion. Under IRC Section 174, specified research and experimentation expenditures must now be capitalized and amortized. These items could result in increased taxable income and acceleration of net operating loss utilization, which could impact our tax expense and ultimately, our net income or loss.
Federal Tax Legislation
The Inflation Reduction Act (the "IRA") was signed into law inAugust 2022 . The IRA, among other provisions, implements (i) a 15% corporate alternative minimum tax (the "CAMT") on book income for corporations whose average annual adjusted financial statement income during the most recently completed three-year period exceeds$1 billion , (ii) a 1% excise tax on net stock repurchases, and (iii) several tax incentives to promote clean energy including an extension of the Investment Tax Credit (the "ITC"). Both the CAMT and the excise tax provisions are effective for tax years beginning afterDecember 31, 2021 . As ofSeptember 30, 2022 , we do not anticipate any material impact in the short-term at this time. 38 -------------------------------------------------------------------------------- Under the IRA, the ITC was extended until 2032 to allow a qualifying homeowner to deduct 30% of the cost of installing residential solar systems from theirU.S. federal income taxes. Under the current terms, the ITC will remain at 30% through the end of 2032 and be further reduced in increments down to 0.0% after the end of 2034, unless extended. We believe this incentive will be favorable for our Solar business.
Potential for Future Valuation Allowance
As discussed in our 2021 Annual Report, we had a significant amount of deferred tax assets as ofDecember 31, 2021 , against which we take valuation allowances that relate to the uncertainty of our ability to utilize these deferred tax assets in future periods. These valuation allowances were not material in 2021. We review periodically those matters that can influence our decision as to whether or not a valuation allowance is appropriate. Among those matters considered are pending and enacted legislation such as the updates described above. We will consider each quarter whether any developments to such legislation, together with the other factors we consider, require a valuation allowance. We believe that our deferred tax assets for disallowed interest under IRC Section 163(j) will grow meaningfully during 2022 and in subsequent years from theirDecember 31, 2021 level. There is currently significant uncertainty in the matters we consider when determining whether it is appropriate to take additional valuation allowances. While we have not reported any material changes to our valuation allowances as disclosed in our 2021 Annual Report, we may determine to do so in subsequent periods. Any material change to our valuation allowance would materially and adversely affect our operating results and may result in a net loss position for any given period.
KEY PERFORMANCE INDICATORS
We evaluate our results using certain key performance indicators, including the operating metrics recurring monthly revenue ("RMR") and gross customer revenue attrition, as well as the non-GAAP measure Adjusted EBITDA. Computations of our key performance indicators may not be comparable to other similarly titled measures reported by other companies. Certain operating metrics are approximated, as there may be variations to reported results due to certain adjustments we might make in connection with the integration over several periods of acquired companies that calculated these metrics differently or periodic reassessments and refinements in the ordinary course of business, including changes due to system conversions or historical methodology differences in legacy systems.
Recurring Monthly Revenue
RMR is generated by contractual recurring fees for monitoring and other recurring services provided to our customers.
We use RMR to evaluate our overall sales, installation, and retention performance. Additionally, we believe the presentation of RMR is useful to investors because it measures the volume of revenue under contract at a given point in time. RMR is also a useful measure for forecasting future revenue performance as the majority of our revenue comes from recurring sources.
Gross Customer Revenue Attrition
Gross customer revenue attrition is defined as RMR lost as a result of customer attrition, net of dealer charge-backs and reinstated customers, excluding contracts monitored but not owned and DIY customers. Customer sites are considered canceled when all services are terminated. Dealer charge-backs represent customer cancellations charged back to the dealers because the customer canceled service during the charge-back period, which is generally thirteen months.
Gross customer revenue attrition is calculated on a trailing twelve-month basis, the numerator of which is the RMR lost during the period due to attrition, net of dealer charge-backs and reinstated customers, and the denominator of which is total annualized RMR based on an average of RMR under contract at the beginning of each month during the period, in each case, excluding contracts monitored but not owned and DIY customers. We use gross customer revenue attrition to evaluate our retention and customer satisfaction performance, as well as evaluate subscriber trends by vintage year. Additionally, we believe the presentation of gross customer revenue attrition is useful to investors as it provides a means to evaluate drivers of customer attrition and the impact of retention initiatives.
Adjusted EBITDA
We also disclose Adjusted EBITDA, which is a non-GAAP measure. Our definition of Adjusted EBITDA, a reconciliation of Adjusted EBITDA to net income (loss) (the most comparable GAAP measure), and additional information, including a description of the limitations relating to the use of Adjusted EBITDA, are provided under "-Non-GAAP Measures." 39 --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
(in thousands, except as otherwise indicated) Three Months Ended September 30, Nine Months Ended September 30, Results of Operations: 2022 2021 $ Change 2022 2021 $ Change Monitoring and related services$ 1,159,641 $
1,098,389
$ 182,054 Installation, product, and other 444,450 218,613 225,837 1,323,139 681,448 641,691 Total revenue 1,604,091 1,317,002 287,089 4,749,868 3,926,123 823,745 Cost of revenue (exclusive of depreciation and amortization shown separately below) 494,321 371,985 122,336 1,511,902 1,134,736
377,166
Selling, general, and administrative expenses 480,427 448,634 31,793 1,449,844 1,343,872
105,972
Depreciation and intangible asset amortization 406,332 480,010 (73,678) 1,281,871 1,424,090
(142,219)
Merger, restructuring, integration, and other 6,285 (6,723) 13,008 2,968 18,588 (15,620) Goodwill impairment 149,385 - 149,385 149,385 - 149,385 Operating income (loss) 67,341 23,096 44,245 353,898 4,837 349,061 Interest expense, net (30,084) (133,275) 103,191 (118,042) (347,524) 229,482 Loss on extinguishment of debt - (36,957) 36,957 - (37,113) 37,113 Other income (expense) (156,116) 1,511 (157,627) (153,157) 4,847 (158,004) Income (loss) before income taxes and equity in net earnings (losses) of equity method investee (118,859) (145,625) 26,766 82,699 (374,953) 457,652 Income tax benefit (expense) (1,534) 36,496 (38,030) (58,982) 92,080 (151,062) Income (loss) before equity in net earnings (losses) of equity method investee (120,393) (109,129) (11,264) 23,717 (282,873)
306,590
Equity in net earnings (losses) of equity method investee (1,594) - (1,594) (2,542) - (2,542) Net income (loss)$ (121,987) $ (109,129) $ (12,858) $ 21,175 $ (282,873) $ 304,048 Key Performance Indicators: (1) RMR$ 372,070 $
356,341
$ 15,729 Gross customer revenue attrition (percent) 12.6% 13.4% N/A 12.6% 13.4% N/A Adjusted EBITDA (2)$ 619,941 $ 554,310 $ 65,631 $ 1,818,187 $ 1,638,306 $ 179,881 _______________________ (1)Refer to the "Key Performance Indicators" section for the definitions of these key performance indicators. (2)Adjusted EBITDA is a non-GAAP measure. Refer to the "Non-GAAP Measures" section for the definition of this term and a reconciliation to the most comparable GAAP measure. N/A - Not applicable.
Monitoring and Related Services Revenue:
Monitoring and related services revenue ("M&S Revenue") is primarily comprised of revenue generated from providing recurring monthly monitoring and other services. Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2022 2021 $ Change 2022 2021 $ Change CSB$ 1,021,811 $ 975,810 $ 46,001 $ 3,026,281 $ 2,892,291 $ 133,990 Commercial 137,830 122,579 15,251 400,448 352,384 48,064 Total M&S Revenue(1)$ 1,159,641 $ 1,098,389 $ 61,252 $ 3,426,729 $ 3,244,675 $ 182,054 _________________
(1) M&S Revenue is not applicable to our Solar segment.
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As of
The increases in M&S Revenue for the three and nine months ended
•an increase in average revenue per subscriber of 3%, as new and existing customers selected higher priced interactive and other services, and
•an increase in our subscriber base of 2% primarily due to subscriber growth initiatives and improvements in customer retention.
Gross customer revenue attrition was 12.6% as ofSeptember 30, 2022 compared to 13.4% as ofSeptember 30, 2021 . The improvement in gross customer revenue attrition was driven by a decrease in relocations and fewer voluntary disconnects primarily resulting from customer retention initiatives, partially offset by higher non-payment disconnects.
CSB:
During the three and nine months endedSeptember 30, 2022 , the increases in CSB M&S Revenue, as compared to the prior year periods, were primarily due to increases in recurring revenue of$41 million and$116 million , respectively, driven by the improvements in RMR described above.
Commercial:
For the three and nine months ended
•increases in non-contracted service revenue of
•increases in recurring revenue of
Installation, Product, and Other Revenue:
Installation, product, and other revenue is comprised of revenue from the sale and installation of security and solar systems, as well as the amortization of deferred subscriber acquisition revenue primarily, in our CSB segment. Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2022 2021 $ Change 2022 2021 $ Change CSB$ 88,829 $ 59,790 $ 29,039 $ 235,437 $ 204,561 $ 30,876 Commercial 176,468 158,823 17,645 501,513 476,887 24,626 Solar 179,153 - 179,153 586,189 - 586,189 Total installation, product, and other revenue$ 444,450 $ 218,613 $ 225,837 $ 1,323,139 $ 681,448 $ 641,691 The increase in total installation, product, and other revenue for the three and nine months endedSeptember 30, 2022 , as compared to the prior year periods, was primarily due to revenue from Solar installations, as shown above, as a result of the ADT Solar Acquisition inDecember 2021 , and included a reduction of approximately$30 million in the first quarter of 2022 from the amortization of purchase accounting adjustments.
CSB:
For the three months ended
•an increase in the amortization of deferred subscriber acquisition revenue of$19 million due to an increase in ADT-owned transactions since the prior year period, and
•an increase in installation revenue on outright sales of
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For the nine months ended
•an increase in the amortization of deferred subscriber acquisition revenue of$52 million due to an increase in ADT-owned transactions since the prior year period, partially offset by •a net decrease in installation revenue of$21 million primarily driven by a lower volume of outright sales as a result of our transition to a predominately company-owned model in the first quarter of 2021.
Commercial:
For the three and nine months ended
Cost of Revenue:
Cost of revenue is primarily comprised of costs related to the installation of our security and solar systems, as well as field service and call center costs in our CSB and Commercial segments. Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2022 2021 $ Change 2022 2021 $ Change CSB$ 163,383 $ 172,483 $ (9,100) $ 505,767 $ 553,620 $ (47,853) Commercial 216,702 199,502 17,200 623,590 581,116 42,474 Solar 114,236 - 114,236 382,545 - 382,545 Total cost of revenue$ 494,321 $ 371,985 $ 122,336 $ 1,511,902 $ 1,134,736 $ 377,166
The increase in total cost of revenue for the three and nine months ended
CSB:
For the three months ended
•a decrease in field service and call center costs of$14 million , as compared to the prior year period, primarily driven by a lower volume of in-person service tickets as a result of cost savings initiatives such as ourVirtual Assistance Program implemented inJuly 2021 , despite rising costs and providing service to a larger number of customers, including a higher mix of interactive services, partially offset by
•an increase in installation costs of
For the nine months ended
•a decrease in field service and call center costs of$27 million , as compared to the prior year period, primarily driven by a lower volume of in-person service tickets as a result of ourVirtual Assistance Program described above, and
•a decrease in installation costs of
Commercial:
For the three months ended
•an increase in installation costs of
•an increase in field service costs of
For the nine months ended
•an increase in field service costs of
•an increase in installation costs of
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These increases were primarily attributable to an increase in installations and services performed in connection with strong sales performance as discussed above and reflect higher prices for materials, labor, and fuel.
Selling, General, and Administrative Expenses:
For the three and nine months ended
•incremental expenses of approximately
•an increase in selling costs (excluding ADT Solar) of approximately
•increases in the provision for credit losses (excluding ADT Solar) of approximately$14 million and$33 million , respectively, primarily in our CSB segment due to lower provision in the prior year associated with impacts from the COVID-19 Pandemic.
These increases were partially offset by:
•decreases in radio conversion costs of
•decreases in advertising costs (excluding ADT Solar) of approximately$29 million and$67 million , respectively, primarily due to our efforts to optimize our advertising model in our CSB segment.
Depreciation and Intangible Asset Amortization:
For the three and nine months ended
•decreases in the amortization of customer relationship intangible assets of
The decrease in the amortization of customer relationship intangible assets was primarily due to certain assets acquired as part of the acquisition ofThe ADT Security Corporation in 2016 (the "ADT Acquisition") becoming fully amortized beginning with the fourth quarter of 2021. The remaining customer relationship intangible assets acquired as part of the ADT Acquisition will be fully amortized during 2023.
These decreases were partially offset by investments in subscriber growth resulting in:
•increases in the amortization of customer contracts acquired under our
authorized dealer program and from other third parties of
•increases in the depreciation of subscriber system assets of
Merger, Restructuring, Integration, and Other:
During the nine months endedSeptember 30, 2021 , merger, restructuring, integration, and other primarily included an$18 million impairment charge in CSB due to lower than expected benefits from our developed-technology intangible asset acquired duringNovember 2020 .
Goodwill Impairment:
For the three and nine months endedSeptember 30, 2022 , we recorded a goodwill impairment charge of$149 million associated with our Solar reporting unit, which was the result of an interim impairment analysis performed. Refer to Note 6 "Goodwill and Other Intangible Assets" for further discussion.
Interest Expense, net:
For the three and nine months endedSeptember 30, 2022 , the decrease in interest expense, net was driven by higher unrealized gains of$85 million and$198 million , respectively, related to interest rate swap contracts not designated as cash flow hedges primarily due to fluctuations in the forward London Interbank Offered Rate ("LIBOR"). Refer to Note 8 "Derivative Financial Instruments" for additional information. 43 --------------------------------------------------------------------------------
Loss on Extinguishment of Debt:
During the three and nine months ended
Other Income (Expense):
For the three and nine months endedSeptember 30, 2022 , other income (expense) primarily included the change in fair value of the Forward Contract related to the Tender Offer of$158 million . In the fourth quarter of 2022, we expect to recognize a gain of approximately$95 million as a result of further adjustments to the fair value of the Forward Contract. Refer to Note 10 "Equity" for additional information.
Income Tax Benefit (Expense):
The effective tax rate can vary from period to period due to permanent tax adjustments, discrete items such as the settlement of income tax audits and changes in tax laws, as well as recurring factors such as changes in the overall state tax rate.
The Company's income tax expense for the three months endedSeptember 30, 2022 was$2 million , resulting in an effective tax rate for the period of (1.3)%. The effective tax rate primarily represents the federal statutory rate of 21.0% plus a state statutory tax rate, net of federal benefits, of 6.5%, favorable impacts from research and development ("R&D") credits and other items, partially offset by an unfavorable impact related to the fair value adjustment of the Forward Contract. The Company's income tax benefit for the three months endedSeptember 30, 2021 was$36 million , resulting in an effective tax rate for the period of 25.1%. The effective tax rate primarily represents the federal statutory rate of 21.0% and a state statutory tax rate, net of federal benefits, of 3.1%. The Company's income tax expense for the nine months endedSeptember 30, 2022 was$59 million , resulting in an effective tax rate for the period of 71.3%. The effective tax rate primarily represents the federal statutory rate of 21.0%, a state statutory tax rate, net of federal benefits, of 5.0%, unfavorable impacts related to the fair value adjustment of the Forward Contract and other items, partially offset by favorable impacts from R&D credits and other items. The Company's income tax benefit for the nine months endedSeptember 30, 2021 was$92 million , resulting in an effective tax rate for the period of 24.6%. The effective tax rate primarily represents the federal statutory tax rate of 21.0%, a state statutory tax rate, net of federal benefits, of 2.9%, and a 0.6% favorable impact of share-based compensation.
NON-GAAP MEASURES
To provide investors with additional information in connection with our results as determined in accordance with GAAP, we disclose Adjusted EBITDA as a non-GAAP measure. This measure is not a financial measure calculated in accordance with GAAP, and it should not be considered as a substitute for net income, operating income, or any other measure calculated in accordance with GAAP, and may not be comparable to similarly titled measures reported by other companies.
Adjusted EBITDA
We believe Adjusted EBITDA is useful to investors to measure the operational strength and performance of our business. We believe the presentation of Adjusted EBITDA is useful as it provides investors additional information about our operating profitability adjusted for certain non-cash items, non-routine items we do not expect to continue at the same level in the future, as well as other items not core to our operations. Further, we believe Adjusted EBITDA provides a meaningful measure of operating profitability because we use it for evaluating our business performance, making budgeting decisions, and comparing our performance against other peer companies using similar measures. We define Adjusted EBITDA as net income or loss adjusted for (i) interest; (ii) taxes; (iii) depreciation and amortization, including depreciation of subscriber system assets and other fixed assets and amortization of dealer and other intangible assets; (iv) amortization of deferred costs and deferred revenue associated with subscriber acquisitions; (v) share-based compensation expense; (vi) merger, restructuring, integration, and other; (vii) losses on extinguishment of debt; (viii) radio conversion costs, net; and (ix) other income/gain or expense/loss items such as changes in fair value of certain financial instruments, impairment charges, financing and consent fees, or acquisition-related adjustments. 44 -------------------------------------------------------------------------------- There are material limitations to using Adjusted EBITDA. Adjusted EBITDA does not take into account certain significant items, including depreciation and amortization, interest, taxes, and other adjustments which directly affect our net income (loss). These limitations are best addressed by considering the economic effects of the excluded items independently and by considering Adjusted EBITDA in conjunction with net income or loss as calculated in accordance with GAAP.
The table below reconciles Adjusted EBITDA to net income (loss):
Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2022 2021 $ Change 2022 2021 $ Change Net income (loss)$ (121,987) $ (109,129) $ (12,858) $ 21,175 $ (282,873) $ 304,048 Interest expense, net 30,084 133,275 (103,191) 118,042 347,524 (229,482) Income tax expense (benefit) 1,534 (36,496) 38,030 58,982 (92,080) 151,062 Depreciation and intangible asset amortization 406,332 480,010 (73,678) 1,281,871 1,424,090
(142,219)
Amortization of deferred subscriber acquisition costs 42,244 32,534 9,710 118,233 91,364 26,869 Amortization of deferred subscriber acquisition revenue (63,796) (45,020) (18,776) (175,680) (122,908)
(52,772)
Share-based compensation expense 16,692 16,242 450 49,644 45,848 3,796 Merger, restructuring, integration, and other 6,285 (6,723) 13,008 2,968 18,588 (15,620) Goodwill impairment(1) 149,385 - 149,385 149,385 - 149,385 Loss on extinguishment of debt - 36,957 (36,957) - 37,113
(37,113)
Change in fair value of financial instruments(2) 157,550 - 157,550 157,550 - 157,550 Radio conversion costs, net (4,078) 52,295 (56,373) 6,406 171,659
(165,253)
Acquisition related adjustments(3) (1,226) 1,526 (2,752) 36,397 1,049 35,348 Other(4) 922 (1,161) 2,083 (6,786) (1,068) (5,718) Adjusted EBITDA$ 619,941 $ 554,310 $ 65,631 $ 1,818,187 $ 1,638,306 $ 179,881 ________________ (1) Represents an impairment charge associated with our Solar reporting unit. Refer to Note 6 "Goodwill and Other Intangible Assets." (2) Represents the change in fair value of the Forward Contract. Refer to Note 10 "Equity." (3) During 2022, primarily represents the amortization of the customer backlog intangible asset acquired in the ADT Solar Acquisition, which was fully amortized as ofMarch 2022 . (4) During 2022, primarily represents the gain on sale of a business.
Adjusted EBITDA in total and by segment are set forth below. As noted above,
Adjusted EBITDA is our segment profit measure pursuant to
Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2022 2021 $ Change 2022 2021 $ Change CSB$ 592,107 $ 528,680 $ 63,427 $ 1,733,353 $ 1,558,055 $ 175,298 Commercial 34,310 25,630 8,680 89,303 80,251 9,052 Solar (6,476) - (6,476) (4,469) - (4,469) Adjusted EBITDA$ 619,941 $ 554,310 $ 65,631 $ 1,818,187 $ 1,638,306 $ 179,881
The drivers listed below exclude amounts that are outside of our definition of Adjusted EBITDA.
Refer to the discussions above under "-Results of Operations" for further details.
CSB:
For the three and nine months ended
•higher M&S Revenue of
•lower advertising costs of
•lower field service and call center costs of
45 --------------------------------------------------------------------------------
The increases were partially offset, respectively, by:
•higher selling and general and administrative expenses of
•higher provision for credit losses of
Commercial:
For the three and nine months ended
•higher M&S Revenue of
•higher installation revenue, net of the associated installation costs of
•higher field service and call center costs of
•higher provision for credit losses of
The remainder was primarily due to higher selling, general and administrative expenses.
Solar: Solar Adjusted EBITDA for the nine months endedSeptember 30, 2022 includes$11 million of charges in the second quarter associated with the estimated amount of receivables and rebates that are not expected to be collected from a former third-party lender that provided loan products for our Solar customers due to this third-party lender entering a formal insolvency proceeding to effectuate the wind-down of its operations.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and capital resources primarily consisted of the following:
September 30, (in thousands) 2022 Cash and cash equivalents$ 45,734 Availability under First Lien Revolving Credit Facility$ 575,000 Uncommitted available borrowing capacity under Receivables Facility$ 70,345 Carrying amount of total debt outstanding$ 9,803,060 Liquidity We expect our ongoing sources of liquidity to include cash generated from operations, borrowings under our first lien revolving credit facility (the "First Lien Revolving Credit Facility") and our uncommitted receivables securitization financing agreement (the "Receivables Facility"), and the issuance of equity and/or debt securities as appropriate given market conditions. Our future cash needs are expected to include cash for operating activities, working capital, capital expenditures, strategic investments, periodic principal and interest payments on our debt, and potential dividend payments to our stockholders. We are a highly leveraged company with significant debt service requirements and have both fixed-rate and variable-rate debt. We may periodically seek to repay, redeem, repurchase, or refinance our indebtedness, or seek to retire or purchase our outstanding securities through cash purchases in the open market, privately negotiated transactions, a 10b5-1 repurchase plan, or otherwise, and any such transactions may involve material amounts. Cash outflows for interest payments are not consistent between quarters, with larger outflows occurring in the first and third quarters, and may vary as a result of our variable rate debt. Certain of our variable rate debt instruments are currently based on LIBOR. The Secured Overnight Financing Rate ("SOFR") will replace the forward LIBOR as the applicable benchmark rate for all existing and future issuances of our debt instruments with a variable rate component (the "SOFR Transition") byJune 2023 (the "SOFR Transition Date"). Existing instruments under the FirstLien Credit Agreement will continue to be based on LIBOR until the SOFR Transition Date. However, any modification, such as a repricing, or any new debt issuances with a variable rate component, will utilize SOFR per the terms of the First Lien Credit Agreement. As ofSeptember 30, 2022 , we do not anticipate any material impacts from the SOFR Transition. We are closely monitoring the impact of recent inflationary pressures and changes in interest rates on our cash position. However, we believe our cash position, borrowing capacity available under our First Lien Revolving Credit Facility and Receivables Facility, and cash provided by operating activities are, and will continue to be, adequate to meet our operational and business needs in the next twelve months, as well as our long-term liquidity needs. 46 --------------------------------------------------------------------------------
Material Cash Requirements
There have been no significant changes to our short-term or long-term material cash requirements, or our commitments and contractual obligations from those disclosed in our 2021 Annual Report, except as discussed below:
Customer Account Purchases
In 2021, we entered into agreements for potential future customer account purchases from two distinct third parties, assuming certain conditions are met, over the course of those agreements. As ofSeptember 30, 2022 , the remaining commitments for those potential future customer account purchases were not material.
Off-Balance Sheet Arrangements
During the nine months endedSeptember 30, 2022 , there have been no material changes to our off-balance sheet arrangements as disclosed in our 2021 Annual Report, except as discussed below: DuringMarch 2022 , we entered into an unsecured Credit Agreement withGoldman Sachs Mortgage Company , as administrative agent and issuing lender (the "Issuing Lender"), together with other lenders party thereto, pursuant to which we may request the Issuing Lender to issue one or more letters of credit for its own account or the account of its subsidiaries, in an aggregate face amount not to exceed$75 million at any one time.
Long-Term Debt
There have been no material changes to our long-term debt from those disclosed in our 2021 Annual Report, except as discussed below.
Refer to Note 7 "Debt" for further discussion on our debt agreements.
First Lien Revolving Credit Facility
During the nine months ended
Term Loan A Facility
InSeptember 2022 , we entered into a debt commitment letter with various banks to provide up to an aggregate principal amount of$600 million of term loans under a senior secured term loan A facility (the "Term Loan A Facility") on or beforeMarch 15, 2023 (the "Commitment Termination Date") under a term loan credit agreement (the "Term Loan A Credit Agreement"). We may execute the Term Loan A Credit Agreement and incur indebtedness under the Term Loan A Facility, or at our option, terminate the commitments at any time prior to the Commitment Termination Date. The proceeds of any borrowings under the Term Loan A Facility are required to be used to redeem a portion of the ADT Notes due 2023 (as discussed below) and pay related fees and expenses.
As of
Receivables Facility InMay 2022 , we amended the Receivables Facility to change the benchmark rate from 1-month LIBOR to Daily SOFR. In addition, theMay 2022 amendment extended the scheduled termination date for the uncommitted revolving period fromOctober 2022 toMay 2023 , and amended certain other terms to increase the advance rate on pledged collateral. During the nine months endedSeptember 30, 2022 , we received proceeds of$212 million and repaid$81 million , and as ofSeptember 30, 2022 , the Receivables Facility had an outstanding balance of$330 million . We are currently evaluating options for increasing our available borrowing capacity under the Receivables Facility. 47 --------------------------------------------------------------------------------
ADT Notes due 2023
As ofSeptember 30, 2022 , we had an outstanding balance of$700 million under our senior notes due 2023 (the "ADT Notes due 2023") that was classified as a current liability, net of any unamortized discount. We intend to use the proceeds from the issuance of the Term Loan A Facility to redeem a portion of the ADT Notes due 2023 during the first quarter of 2023 and redeem the remaining outstanding balance upon maturity, in both instances including the payment of related expenses, using available cash.
Debt Covenants
As ofSeptember 30, 2022 , we were in compliance with all financial covenant and other maintenance tests for all our debt obligations. We do not believe there is a material risk of future noncompliance with our financial covenant and other maintenance tests as a result of the COVID-19 Pandemic, or otherwise.
Dividends
During the nine months endedSeptember 30, 2022 and 2021, we declared aggregate dividends of$90 million ($0.035 per share) and$82 million ($0.035 per share) on our Common Stock, respectively, and$6 million ($0.035 per share) on our Class B Common Stock during both periods. OnNovember 3, 2022 , we announced a dividend of$0.035 per share to holders of Common Stock and Class B Common Stock of record onDecember 15, 2022 , which will be distributed onJanuary 4, 2023 . Cash Flow Analysis Nine Months Ended September 30, (in thousands) 2022 2021 $ Change
Net cash provided by (used in) operating activities
$ 1,155,353 $ 165,716 Net cash provided by (used in) investing activities$ (1,208,790) $ (1,170,649) $ (38,141) Net cash provided by (used in) financing activities$ (85,772)
Cash Flows from Operating Activities
The increase in cash provided by operating activities was primarily due to:
•a decrease in payments related to radio conversion costs, net of the related
incremental revenue, of
•an increase in payments related to our annual incentive compensation plan of
•timing of payments to and receipts from vendors primarily related to accounts payable and inventory.
The remainder of the activity related to changes in assets and liabilities due to the volume and timing of other operating cash receipts and payments with respect to when the transactions are reflected in earnings.
Refer to the discussions above under "-Results of Operations" for further details.
Cash Flows from Investing Activities
During the nine months ended
•an increase in net outflows of
•cash paid of
•proceeds of
48 --------------------------------------------------------------------------------
Cash Flows from Financing Activities
During the nine months ended
•dividends on common stock of
•net repayments of long-term borrowings of$48 million , which primarily included net payments of$25 million on our First Lien Revolving Credit Facility and$21 million of quarterly principal payments on our First Lien Term Loan due 2026,
•payments related to finance leases of
•payments related to interest rate swap contracts that included an
other-than-insignificant financing element at inception of
•net proceeds of
During the nine months ended
•dividends on common stock of
•net repayments of long-term borrowings of$41 million , which included$28 million in call premiums and$14 million of quarterly principal payments on our First Lien Term Loan due 2026.
•payments related to interest rate swap contracts that included an
other-than-insignificant financing element at inception of
•payments related to finance leases of
•net proceeds under the Receivables Facility of
CRITICAL ACCOUNTING ESTIMATES
We disclosed our critical accounting estimates in our 2021 Annual Report, which include estimates prepared in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations. Critical accounting estimates are based on, among other things, estimates, assumptions, and judgments made by management that include inherent risks and uncertainties. Our estimates are based on relevant information available at the end of each period. Actual results could differ materially from these estimates under different assumptions or market conditions.
There were no material changes in our critical accounting estimates to that disclosed in our 2021 Annual Report, except as discussed below:
Goodwill Impairment
We perform our annual goodwill impairment test onOctober 1 of each year or more often if events occur or circumstances change which indicate it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. Under a quantitative approach, we estimate the fair value of a reporting unit and compare it to the reporting unit's carrying amount. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. As disclosed in our 2021 Annual Report, we acquired ADT Solar inDecember 2021 and assigned the goodwill to our newly created Solar reporting unit at the time of acquisition. During the third quarter of 2022, as a result of ADT Solar's recent underperformance of operating results in successive quarters relative to expectations, as well as current macroeconomic conditions, including the impact of theFederal Reserve further increasing the risk-free interest rate, we performed an interim impairment quantitative assessment on our Solar reporting unit as ofSeptember 30, 2022 . We estimated the fair value of the Solar reporting unit using the income approach, which included significant assumptions such as forecasted revenue, Adjusted EBITDA margins, and discount rates, as well as other assumptions including operating expenses and cash flows. In developing these assumptions, we relied on various factors including operating results, business plans, economic projections, anticipated future cash flows, and other market data. Examples of events or circumstances that could reasonably be expected to negatively affect the underlying judgments and factors may include such items as a prolonged downturn in the business environment, changes in economic conditions that significantly differ from our assumptions in timing or degree, volatility in equity and debt markets resulting in higher discount rates, and unexpected regulatory changes. There are inherent uncertainties related to these judgments and factors that may ultimately impact the estimated fair value determinations. 49 -------------------------------------------------------------------------------- Based on the results of our interim impairment analysis, we recorded a non-cash impairment charge of$149 million in the Condensed Consolidated Statements of Operations during the third quarter of 2022. Following the impairment loss, the remaining balance of goodwill attributable to our Solar reporting unit is approximately$561 million . As the carrying value of the Solar reporting unit approximates its fair value following the impairment charge, the Solar reporting unit is considered at risk of future impairment. If our assumptions are not realized, or if there are future changes in any of the assumptions due to a change in economic conditions or otherwise, it is possible that a further impairment charge may need to be recorded in the future.
Refer to Note 6 "
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain information that may constitute "forward-looking statements" within the meaning of theU.S. Private Securities Litigation Reform Act of 1995 and are made in reliance on the safe harbor protections provided thereunder. While we have specifically identified certain information as being forward-looking in the context of its presentation, we caution you that all statements contained in this report that are not clearly historical in nature, including statements regarding the strategic investment by and long term partnership withState Farm ; anticipated financial performance; management's plans and objectives for future operations; the successful development, commercialization, and timing of new or joint products; expected timing of product commercialization withState Farm or any changes thereto; our acquisition of ADT Solar and its anticipated impact on our business and financial condition; business prospects; outcomes of regulatory proceedings; market conditions; our ability to successfully respond to the challenges posed by the COVID-19 Pandemic; our strategic partnership and ongoing relationship withFord ; the successful conversion of customerswho continue to utilize 3G services; the current and future market size for existing, new, or joint products; any stated or implied outcomes with regards to the foregoing; and other matters are forward-looking. Forward-looking statements are contained principally in the sections of this report entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Without limiting the generality of the preceding sentences, any time we use the words "expects," "intends," "will," "anticipates," "believes," "confident," "continue," "propose," "seeks," "could," "may," "should," "estimates," "forecasts," "might," "goals," "objectives," "targets," "planned," "projects," and, in each case, their negative or other various or comparable terminology, and similar expressions, we intend to clearly express that the information deals with possible future events and is forward-looking in nature. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. For ADT, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include, without limitation: •our ability to effectively implement our strategic partnership with, commercialize products with, or utilize any of the amounts invested in us byState Farm or provided byState Farm for R&D or other purposes; •our ability to keep pace with rapid technological changes, including the development of our next-generation platform, and industry changes; •our ability to effectively implement our strategic partnership with or utilize any of the amounts invested in us by
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•our ability to integrate various companies we have acquired in an efficient and cost-effective manner; •the amount and timing of our cash flows and earnings, which may be impacted by customer, competitive, supplier and other dynamics and conditions; •our ability to maintain or improve margins through business efficiencies; •and the other factors that are described in this report under the heading "Risk Factors." Forward-looking statements and information involve risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such statements, including without limitation, the risks and uncertainties disclosed or referenced under the heading "Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q and in Part I, Item 1A in our 2021 Annual Report. Therefore, caution should be taken not to place undue reliance on any such forward-looking statements. Much of the information in this report that looks toward future performance is based on various factors and important assumptions about future events that may or may not actually occur. As a result, our operations and financial results in the future could differ materially and substantially from those we have discussed in the forward-looking statements included in this Quarterly Report on Form 10-Q. We assume no obligation (and specifically disclaim any such obligation) to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.
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